Business Operations in Colombia contains information enabling foreign investors to determine the best method of conducting their operations in Colombia from both a tax and a general legal point of view, and analyzes in detail the statutory and procedural framework of Colombian income taxation as it applies to individuals and corporations.

Written by Mario J. Andrade Perilla, Esq., Global Tax & Legal Services
Deloitte Touche Tohmatsu, and Mario A. de Castro, Esq., Freeman, Haber, Rojas & Stanham, LLP, this Portfolio outlines the requirements for the organization of a Colombian company and looks at the practical issues that confront foreign businesses operating in Colombia, including foreign investment regulation, currency and exchange controls, trade and commerce regulations, immigration regulations, and labor relations

In addition to covering the basic tax and financial accounting rules and a detailed explanation of the Colombian system of income taxation, this Portfolio discusses indirect taxation (value added tax), payroll tax and local taxes.

Among the many worksheets included in this Portfolio, readers will find bank forms, foreign exchange declarations, and income tax return forms.

Business Operations in Colombia allows you to benefit from:

• A perspective that addresses the concerns of foreign investors/enterprises and their advisors looking to invest/do business or already invested/doing business in the country
• Identification of those features of the country’s system that are likely to prove most problematic to outside investors
• Emphasis on those aspects of the tax system that impact transactions and structures with a cross-border dimension
• Information and insight to enable users to anticipate the pitfalls and opportunities likely to arise in making an initial investment, carrying on operations and devising potential exit strategies
• Invaluable practice documents including tables, charts and lists
• Time-saving citations to relevant sections of tax laws, regulations, court cases, and more

This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 100 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource library offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in Italy, Business Operations in Puerto Rico, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

Detailed Analysis

I. Colombia: The Country, its People, and Economy

A. The Country

B. Language

C. Population

D. Basic History

E. Political Organization

F. Economy

1. Overview

2. Agriculture

3. Energy

4. Minerals and Ores

II. Operating a Business in Colombia

A. Foreign Investment Regulation

1. Legislation on Foreign Investment: General Overview

2. Investment Restrictions

3. Foreign Investment Registration

4. Representation, Controversies, Controls, and Sanctions

a. Representation and Notice

b. Sanctions

5. Special Foreign Investment Regimes Within the General Regime

a. Financial Sector

b. Hydrocarbons and Mining

c. Portfolio Investments with Foreign Capital

6. Legal Stability Agreements

B. Currency and Exchange Controls

1. Legal Background

2. The Channeling of Foreign Currency

a. The Exchange Market

(1) Exchange Market Transactions

(a) Imports and Exports of Merchandise

(b) Foreign Indebtedness Operations

(i) Basic Rules

(ii) Deposit Requirement

(iii) Loans Exempt from Deposit Requirement

(c) Foreign Capital Investments

(d) Colombian Investments Abroad

(2) Exchange Declaration

(3) Authorized Foreign Exchange Intermediaries

(4) Bank Accounts as Compensation Mechanism

(5) Special Compensation Accounts

b. Foreign Exchange Free Market

(1) Utilization of Foreign Currency from Free Market

(2) Transactions between Colombian Residents

(3) Ordinary Foreign Currency Accounts

3. Special Regimes

4. Free Trade Zones

C. Trade and Commerce Regulation

1. Imports and Exports

a. International Trade Agreements

(1) General Overview

(2) Andean Trade Preference Act

(3) Andean Generalized System of Preferences

(4) Generalized System of Preferences

(5) Andean Community of Nations/Cartagena Agreement

(6) Group of Three

(7) Complementary Trade Agreement with Chile

(8) Latin American Integration Association

(9) Caribbean Community

(10) World Trade Organization

(11) Colombia in Pacific Basin Economic Council

(12) Mercosur

(13) Free Trade Treaty with United States

b. Licenses and Quotas

c. Custom Duties and Other Taxes

d. Duty Drawback/Deferral Programs

(1) Cert

(2) Plan Vallejo

(3) Temporary Imports

e. Value-Added Tax

f. Other Special Customs Regimes

(1) Maquila Operations

(2) Special Economic Export Zones

(3) Special Customs Zones

(4) Free Trade Zones

2. General Regulation of Business

a. Monopolies

b. Mergers and Acquisitions

c. Stock Acquisitions

d. Mergers

e. Spin-offs & Split-offs

f. Restrictive Trade Practices and Unfair Competition

g. Price Controls

h. Securities Regulation

i. Privatization Rules

3. Intellectual Property Rights

a. Patents

b. Industrial Designs

c. Industrial Secrets

d. Trademarks

e. Collective Marks

f. Franchising

g. Copyrights

h. Intellectual Property Violations

D. Immigrant Regulations

1. Overview

2. Visas

a. Courtesy Visas

b. Business Visas

c. Temporary Visas

d. Resident Visas

e. Visitor Visas

3. Registration with the Department of Administrative Security

4. Sanctions for Noncompliance with Immigration Law

E. Labor Relations

1. Legal Framework

2. Individual Labor Regime

a. Salary

b. Working Day

c. Foreign Employees

d. Labor Contracts

e. Termination of Employment Contracts

f. Indemnification for Unjustified Termination of Employee

g. Suspension of Labor Contracts

h. Mandatory Fringe Benefits

3. Organized Labor Management Regime

a. Unions

b. Collective Labor Bargaining Agreements

c. Strikes

4. Social Security System

F. Financing the Business

G. Leasing

1. Pure Finance Lease

2. Operating Lease

3. Infrastructure Leasing

III. Forms of Doing Business in Colombia

A. Principal Business Entities

B. Joint Stock Corporation / Sociedad Anonima

1. Formation

a. Purpose Clause

b. Corporate Name

c. Incorporation

d. Articles of Incorporation

e. Capital Stock

(1) Ordinary Shares

(2) Industrial Shares

(3) Preference Shares

(4) Shares Without Voting Rights (Preferred Nonvoting Shares)

f. Incorporation Procedure for Foreign Shareholders

g. Costs of Incorporation

2. Operation

a. License

b. Amendments to Articles of Incorporation

c. Increases and Decreases in Capital

(1) Increase in Capital

(2) Decreases in Capital

d. Acquisition of Own Stock

e. Corporate Officers

f. Shareholders' Meetings

g. Director Meetings

h. Books and Records

i. Financial Statements

j. Dividends and Other Distributions

k. Reserves

3. Statutory Merger

4. Dissolution

5. Liquidation

6. Reorganizations

C. Other Corporate Entities (Sociedad en Comandita por Acciones)

D. Limited Liability Company

E. Partnerships

1. General Partnership (Sociedad en Nombre Colectivo)

2. Partnership with Mixed Liabilities (Sociedad en Comandita Simple)

F. Branch of a Foreign Corporation

1. Overview

2. Registration

G. Other Business Forms

1. Joint Venture (Contrato de Cuentas en Participación)

2. Consortium and Temporary Union

3. Trust (Fiducia)

IV. Principal Taxes

Introductory Material

A. Income Tax

B. Estate and Gift Tax

C. Value Added Tax

D. Capital Investment Tax

E. Payroll Tax

F. Trade Tax

G. Net Worth Tax

H. Local Taxes

1. Industry and Commerce Tax

2. Municipal Property Tax

I. Other Taxes

1. Stamp Tax

2. Registration Tax

V. Income Taxation and Financial Accounting of Domestic Entities

A. What Is a Domestic Entity

B. Corporate (Entity) Taxation

1. General Overview

2. Foreign Entities

3. Basis of Taxation

4. Tax Accounting

a. In General

b. Tax Accounting Periods

c. Tax Accounting Methods

d. Inflationary Adjustments (Tax Accounting)

e. Consolidated Returns

5. Taxable Income

a. Gross Income

b. Capital Gains

c. Colombian-Source Income

d. Non-Colombian Source Income

e. Calculation of Taxable Income

6. Deductions

a. Business Expenses in General

b. Organizational Expenses

c. Cost of Goods and Services

(1) General Overview

(2) Retail or Manufacturing Industries

(3) Cost of Acquisition of Goods

(4) Reduction in Inventory Costs

(5) Fixed Asset Costs

(6) Intangibles

(7) Deductibility of Related Party Expenses

(8) Nondeductibility of Value Added Tax

(9) Costs Incurred in Promotion and Marketing of Imported Goods

(10) Travel Expenses

(11) Royalties and Technical Assistance and Service Fees

d. Charitable Contributions

e. Casualty Losses

f. Bad Debts

(1) General System

(2) Individual System

g. Uncollectible Receivables of Financial Institutions

h. Rents

i. Salaries and Fringe Benefits

j. Research and Development

k. Interest

l. Depreciation and Amortization

m. Taxes

n. Foreign Exchange Losses

o. Pension Provisions

p. Loss Carryforward and Carryback

q. Special Deduction for Fixed Asset Acquisitions

7. Tax Credits

a. Foreign Tax Credit

b. Value Added Tax Credit

8. Tax Exemptions

a. Public Utility Companies

b. Industrial Users of Free Trade Zones

c. Interest Generated from External Public Debt

d. Rio Paez Exemption

e. Editorial Companies

9. Corporate Tax Rate

10. Compliance - Assessment and Filing

a. Calendar Tax Year

b. Returns for Legal Entities

c. Tax Audits

d. Disputes and Appeals

e. Payment of Tax

f. Penalties

11. Other Income Taxes

a. Withholding Taxes

b. Remittance Tax

c. Dividend Income Tax

C. Other Taxes Imposed on Colombian Entities

1. Registration Tax

2. Stamp Tax

3. Industry and Commerce Tax

4. Value Added Tax

a. Taxable Transactions

b. Exemptions and Exclusions

c. Imports

d. Exports

e. Tax Rates

f. Value Added Tax Registration and Legal Requirements

g. Special Regimes

5. Financial Transactions Tax

6. Tax on Vehicles

7. Tax on Property

D. Financial Accounting

1. General Overview

2. Accounting Period

3. Colombian Financial Statement Principles

a. Valuation and Measurement

b. Substance over Form and Disclosure

c. Characteristics of Colombian Financial Statements

d. Off-Balance Sheet Accounts

e. Inflationary Adjustments

f. Recording of Entries

4. Colombian Inflationary Accounting - Detailed Explanation

VI. Taxation of Foreign Corporations

A. Definition of a Foreign Corporation

B. Taxation of Foreign Corporations

C. Determination of Taxable Income

D. Rendering of Technical Services and Technical Assistance

E. Software Licensing

F. Sale of Films

G. International Transportation

H. Turn-key Contracts

VII. Taxation of a Branch

A. Formal Branches of Foreign Parent Companies

B. Determination of Taxable Income

C. Method of Taxation

D. Branch Accounting

E. Subsidiary v. Branch

VIII. Taxation of Partnerships

IX. Taxation of Resident Individuals

A. Individuals Subject to Tax

B. Residence

C. Determination of Gross Income

1. Items Included in Gross Income

2. Capital Gains and Losses

3. Exempt Income

D. Allowable Deductions and Credits

1. Business and Personal Deductions

2. Small Taxpayers

E. Tax Rates

F. Assessment and Filing

1. Filing Date

2. Payment of Tax

X. Taxation of Nonresident Individuals

A. General

B. Salaries, Fringe Benefits and Labor Compensation

C. Independent Personal Services

XI. Other Taxes on Individuals

Introductory Material

A. Social Security Contributions

B. Payroll Taxes

XII. Estate, Inheritance, Transfer and Death Tax

XIII. Intercompany Pricing

A. Introduction

B. Related Party Definition

C. Accepted Colombian Transfer Pricing Methods

D. Comparables for Purposes of Applying Accepted Transfer Pricing Methods

E. Acceptable and Required Documentary Evidence

F. Authority to Make Adjustments

G. Tax Haven (Low Tax Jurisdiction) Abuse

H. Costs Allocation and Deduction Limitations

I. Transfer Pricing Report

J. Advance Pricing Agreements

1. General Provisions Concerning Advance Pricing Agreements

2. Procedural Issues: Modifications, Cancellation, and Revocation of Advance Pricing Agreements

K. Sanctions and Penalties for Noncompliance

1. Noncompliant Supporting Evidentiary Information

2. Noncompliant or Incorrect Transfer Pricing Reports and Informational Returns

3. Other, Miscellaneous Cases of Noncompliance

XIV. Special Provisions Relating to Multinational Corporations

XV. Avoidance of Double Taxation

A. Foreign Tax Credit

B. Tax Treaties

1. Shipping and Air Transportation Agreements

2. Andean Pact Agreement

Working Papers

Table of Worksheets

Worksheet 1 Foreign Exchange Declaration for Imports of Foreign Goods - Central Bank Form No. 1

Worksheet 2 Foreign Exchange Declaration for Exports of Foreign Goods - Central Bank Form No. 2

Worksheet 3 Foreign Exchange Declaration for Foreign Indebtedness - Central Bank Form No. 3

Worksheet 4 Report of Disbursemets and Payments of Foreign Indebtedness Central Bank Form No. 3A

Worksheet 5 Foreign Exchange Declaration for International Investments Central Bank Form No. 4

Worksheet 6 Foreign Exchange Declaration for Services, Transfers and other Miscellaneous Services - Central Bank Form No. 5

Worksheet 7 Information Report with Respect to Foreign Indebtedness Granted to Residents Central Bank Form No. 6

Worksheet 8 Information Report with Respect to Foreign Indebtedness Granted to Nonresidents Central Bank Form No. 7

Worksheet 9 Registration of Guarantees in Foreign Currency Central Bank Form No. 8

Worksheet 10 Registration of Compensation Accounts - Central Bank Form No. 9

Worksheet 11 Reporting and Accounting of Compensation Account Transactions Central Bank Form No. 10

Worksheet 12 International (Foreign) Investment Registration Form Central Bank Form No. 11

Worksheet 13 Registration of the Supplementary Capital Investment and Updating of Equity (Capital) Accounts for Special Regime Central Bank Form No. 13

Worksheet 14 Equity (Capital) Reconciliation Reporting for Companies and Subsidiaries - General Regime Central Bank Form No. 15

Worksheet 15 Application for Extension of Time for Foreign Investment Registration Central Bank Form No. 17

Worksheet 16 Central Bank External Regulatory Circular - DCIN 83 - Annex No. 1 - Item 10: Applicable Procedures for Foreign Exchange Operations - International Financial Institutions Accredited and Recognized by the Central Bank for Registered Foreign Indebtedness (Loan) Transactions

Worksheet 17 Central Bank External Regulatory Circular - DCIN 83 - Annex No. 2 - Item 10: Applicable Procedures for Foreign Exchange Operations - Identification Codes for Foreign Exchange Intermediaries

Worksheet 18 Central Bank External Regulatory Circular - DCIN 83 - Annex No. 3 - Item 10: Applicable Procedures for Foreign Exchange Operations - Numerical Code and Instructions for Completing Bank Forms

Worksheet 19 [Reserved]

Worksheet 20 Central Bank External Regulatory Circular - DCIN 83 - Annex No. 5 - Item 10: Applicable Procedures for Foreign Exchange Operations - Electronic Submissions Instructions for Foreign Exchange Intermediaries and Owners of Compensation Accounts

Worksheet 21 [Reserved]

Worksheet 22 Ministry of Foreign Trade Registration for the National Registry of Exporters of Goods and Services - Form No. 001

Worksheet 23 Ministry of Foreign Trade Registration of Importation of Technology Contracts (Decree 259, 1992)

Worksheet 24 Bimonthly Value Added Tax Return, as Amended by Resolucion 001156 of February 16, 2004

Worksheet 25 Monthly Withholding Tax Form

Worksheet 26 Municipal Tax Return Information Form: Industry, Commerce and Sign Tax

Worksheet 27 Ministry of Foreign Trade Importation Registration Form

Worksheet 28 Tax Registration Form

Worksheet 29 Mercantile Registration and Renewal Form

Worksheet 30 Andean Customs Declaration Form

Worksheet 31 Corporate Income Tax Return Form

Worksheet 32 Individual Income Tax Return Form

Worksheet 33 Corporation Bylaws

Worksheet 34 Tax Liability Payment Form

Worksheet 35 Special Notary Public and Justice Administration Tax Payment Form

Bibliography

Primary Sources Containing Colombian Legislation & Case-Law

Secondary Sources